Echo set for battle with Packer

No more stumbles by Echo, says The Star casino owner’s chairman John O’Neill.
Photo: Sasha Woolley

by
Andrew Cleary

Echo Entertainment Group
chairman
John O’Neill
has a simple message for
James Packer
or anyone else who wants to get their hands on the casino owner’s prize asset – it will be on Echo’s terms.

In an interview with The Australian Financial Review, Mr O’Neill acknowledged the recent management and board ­turmoil has exacerbated this year’s public relations disaster at Echo’s The Star casino in Sydney.

Since taking over as chairman from John Story – who was a casualty of a ferocious campaign led by Mr Packer’s Crown that caused the board to roll one of its own – Mr O’Neill said there had been scant time to focus on the main game: protecting the value of Echo’s prize asset, the mon­opoly casino licence in NSW.

Mr O’Neill, who brought forward his resignation from the Australian Rugby Union on Friday after serving for 14 years, wanted investors to know he was up for the fight.

“The question they’re asking me is ‘are you on the front foot enough, are you up for the battle?’ I explain what the game plan is that we’re following – you don’t hand your opposition your game plan," he said.

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“The board and management aren’t sitting on their hands, we’re not in a catatonic state."

No more free kicks

The Echo chairman also has a clear message to his own team – no more free kicks to the competition. “Right at the top of my priority list is no more stumbles. We’re a regulated industry, we’ve got to make sure that risk and compliance are at the top of the agenda, and not have any behaviour or errors of judgment that provide the regulator or government or other interested parties a free kick."

Mr Packer has made it clear he wants to build a $1 billion luxury hotel and casino in Sydney’s Barangaroo precinct directly across the harbour from Echo’s The Star complex.

Crown, which owns 10 per cent of Echo, does not have a licence and has sought approval to buy a maximum of 25 per cent of Echo. The company is exploring ways of achieving its goal without launching a takeover bid.

For its part, Echo has received legal advice that the company’s casino licence in NSW, exclusive until November 2019, cannot be split to develop a second casino in Sydney.

It is a view that appeared to be supported in comments from NSW Premier
Barry O’Farrell
, who said last week the government’s understanding was the exclusivity related to both the life of the licence and to the specific site of The Star in Pyrmont. Mr O’Farrell has, however, made supportive comments about having a new hotel at Barangaroo.

The other option open to Crown, which looks increasingly likely, is for it to press the government to legislate for a second casino licence, either when Echo’s expires in 2019 or beforehand.

Tough sell to shareholders

Echo’s chairman has met with the company’s largest shareholders over the past week, including Perpetual, which holds a 7.5 per cent stake, in a bid to restore confidence in the depleted board. It is a tough sell after nine months that have seen two directors leave the board, the managing director of The Star sacked and the chief executive encouraged out.

“It’s only after the dust settles that you understand how distracting that was," Mr O’Neill said of the negative publicity and management upheaval.

“Besides distracting, it was detracting from the conversation around the value of the asset. I want to get the focus back on that."

Freeing up time for the task ahead at Echo was behind Mr O’Neill’s decision to stand down from leading ARU last week. Mr O’Neill said the main question he had been asked over the past fortnight was whether he and the Echo board were capable of resisting Crown and a chairman in Mr Packer who isn’t afraid of making his corporate battles personal.

Crown is yet to present a firm ­proposal of any kind to Echo over the Barangaroo development. Some Echo shareholders and most analysts say it is hard to envisage an arrangement that would not be vastly in favour of the Packer-controlled company.

FEW positive Sydney options presented for Echo

Of the seven scenarios that broker CLSA says are possible options for Crown to progress its ambitions in Sydney, all are positive for the Packer-controlled company but only a full takeover bid – which Crown has all but ruled out – is positive for Echo.

Echo insiders say a better solution would be a high-roller joint venture that matched the company’s Sydney asset with an Asian partner’s VIP customer base and balance sheet.

Mr O’Neill declined to comment on whether he was pursuing a tie-up with Malaysia’s Genting Group, which is controlled by billionaire K T Lim and whose Genting Hong Kong subsidiary has also sought approval to build a 25 per cent stake in Echo.

Mr O’Neill says Echo has options in the way it approaches potential partners. “I’m not for a moment suggesting Crown isn’t entitled to have plans and aspirations, but Echo has its own reality check of what it’s sitting on and the absolute requirement on behalf of shareholders to extract maximum value. With Genting, the reality is there is a sense of the unknown."
Moves to restore confidence in board

The new chairman’s first step to restoring confidence in the Echo board will be to bolster its numbers. He admitted the board did not handle the ousting of his ­predecessor well. He said Mr Story “paid the ultimate price and took one for the team" by agreeing to step aside.

Mr Story’s departure was followed by the loss of
Brett Paton
. Chief executive
Larry Mullin
will leave in January. Mr O’Neill has appointed former Business Council of Australia chief executive
Katie Lahey
to the board. The company is looking to appoint at least two more non-executive directors in addition to filling the CEO role.

“The public debate in inverted commas is relevant, but what’s more relevant is performance. Our greatest defence is to perform," Mr O’Neill said. “Don’t talk about it, do it on the field."

After the scandal surrounding the sacking of former casino manager Sid Vaikunta earlier this year, and the top level turmoil that shook investor confidence, O’Neill says his priority is ensuring relationships with the government and other stakeholders are rock solid before the differing strategies of Crown and Genting are played out in full.

“I’m more aware now than ever after the demerger from Tabcorp, when the mother ship floated off to the sunset, there’s a lot of things that need to be attended to. Then put in extra layer of the ‘what if’ scenarios, it will more likely get far busier.